Do you want to easily set up a line of credit in QuickBooks to manage your everyday expenses and to give you instant financing for your payroll? Setting up a line of credit and recording it will definitely help you to boost up your savings, manage your expenses easily, and will help you to simplify your cash flow. In this article, we will provide you a complete guide to set up and recording a line of credit in QuickBooks. Read the article till the end, and record a line of credit easily in QuickBooks accounting software.
What is Line of Credit in QuickBooks
In QuickBooks, you provide loans to your customers and vendors. Line of credit is the entries that give information about the credit which is given for loan and the details of the amount recorded. The line of credit can also be reconciled with the past transactions of customers and vendors in QuickBooks. The Line of credit remains predefined in QuickBooks Desktop. When you make a transaction in QuickBooks Desktop, it gets reflected in the line of credit.
to Set up Line of Credit in QuickBooks
Let us have a look at the steps to set up a line of credit in QuickBooks. You have to create 2 accounts to start the setup of the line of credit. The 2 accounts are namely “Principal account” and “Expense account for interest”.
Creat a Principal Account
First of all, create a principal account by using chart of accounts to set up a line of credit in QuickBooks;
- At first, go to the “Settings” tab.
- And click on the “Chart of Accounts” option.
- There will be an option of “New”, just click on that.
- Select the “Account Type” drop down list and pick the “Current Liabilities” option from the drop-down list.
- Now open the “Detail Type” drop down list and select the “Line of Credit” option from the list.
- Give a name to this account.
- Click on the “Save and Close” option.
Create an Expense Account for Interest
Now add on an expense account for interest;
- Go to the “Settings” tab.
- And select the “Chart of Accounts” option from the ‘Settings’ list.
- Click on the “New” option.
- Open the “Account type” drop down list and select the “Expenses” option.
- Now from the “Detail Type” drop down list select the “Interest Paid” option.
- Give a name to this account.
- And click on the “Save and Close” option.
Steps to Track Line of Credit in QuickBooks
Let us have a look at the steps to track a line of credit in QuickBooks
Step 1: Record Line of Credit which is Connected to a Company
Follow the given steps to record the line of credit;
- First of all you have to click on the “+” icon and then select “Bank Deposits”.
- And then make sure that you are depositing the correct deposit of accounts.
- Now move to the bottom of the screen and then add funds in the deposit section.
- Open the drop down list you made and then select the credit card account.
- Enter the deposited amount into your bank account.
- Then select the “Save” option.
Step 2: Record Interest Charges
Now in the next step, we need to record the interest charges;
- Click on the “+” icon and then select “Expense”.
- There you can set your payment method as Credit card.
- Select the “Line of Credit card” located at the top left side on your screen.
- And then choose the “Financial institution” name located at the top left side on your screen.
- Click on the “Payee Field” option.
- Then you have to open the Account drop down list and select “Interest Expense account” from it and then enter the amount of interest charged.
- At last, save all the changes.
Step 3: Pay the Bills from QuickBooks Line of Credit
- First of all you have to open the “Navigation” option and then select “Expenses” and then select “Vendors”.
- Then you have to select “Vendor’s name”.
- Now you have to go to the “Bill” option and then select the “Make payment” option in order to record the payment.
- Click on the “LOC credit card account” and then open the drop down list of the “Payment account”.
- Give all the details of the payment and save all changes.
to Record the Amount of Payment in Line of credit
Now let us have a look at the steps to record the amount of payment to the line of credit in QuickBooks
Method 1: Record the Amount of Credit by Using Cheque Payment
- Click the “+New” button, and go to the suppliers section to select the “Check” option.
- Open the “Payee Field” and enter the name of the financial institution.
- Launch the “Bank Account Field”, and select a bank from the drop down list.
- Go to the “Category” section to select a line of credit from the “Category type” option.
- After that fill the amount and then pay down the principal.
- Again you open the “Category” option and select the “Interest paid” option.
- Fill the amount that you have to pay interest and then click on “Save”.
Method 2: Record the Amount of Credit by Using Card Payment
When you make a payment using a debit card or credit card, then you can easily record it and then classify the expenses on the basis of principal and interest.
to manage the bill payments when amount goes directly from LOC
Let us have a look at the steps on how to manage the bill payments when the amount goes directly from LOC to the vendors.
1st Step: Create a Bill
- Start the procedure by writing a vendor bill.
- And go to the home screen to selet the “Create +” button.
- Choose the “Bill” option and then the “Vendor” option.
- Enter the date.
- And go to the “Account Details” section to select the “Account=Purchases Expenses account” option.
- Save all the changes, and close it.
2nd Step: Create a Journal Entry
Follow the step to create a journal entry in QuickBooks;
- From the dashboard of QuickBooks, click on the “Create +” option.
- And select the “Journal Entry”.
- Now enter the date.
- Open the Account dropdown list and then click on “Accounts Payable” option.
- Then you have to go to the “Debit column” and then enter the amount paid to the vendor.
- Create a memo.
- Select the name from the drop down list and then the vendor whom you paid.
- Now go to the 2nd line and open the Account dropdown list and then click on “Line of Credit account”.
- Enter the amount that you have paid to the vendor and then create a memo.
- Then you have to click on the “Save and Close”.
3rd Step: Create a Pay Bill
- Click on the “Create +” button from the dashboard.
- Select the “Pay Bills” option.
- Choose the name of the vendor, and a bank clearing account which will always have zero balance.
- Now a window will appear on your screen displaying a matching amount.
- Click on the check boxes to match the amount and clear the amount field zero.
- And select the “Save and Close” option.
We hope that now you can easily set up and record a line of credit in QuickBooks by yourself. You should follow all the steps carefully mentioned above in the article. We will recommend you to read the entire article and follow all the steps without skipping a single step. You can drop a call to us if you need any help from Wizxperts through the QuickBooks experts.